District Court Refuses to Uphold Release of Liability or Apply Public Disclosure Bar Based on State-Law Employment Suit, Dismisses Off-Label Promotion Claims Under Rule 9(b)

Posted by Jaime L.M. Jones and Brenna Jenny

A court in the Eastern District of Pennsylvania recently ruled that, despite a relator’s publication during an employment retaliation suit of allegations relating to the defendant’s alleged off-label promotion and payment of kickbacks, such allegations were not publicly disclosed, nor was the relator’s execution of a release of liability effective. U.S. ex rel. Gohil v. Sanofi-Aventis U.S. Inc., No. 02-cv-02964 (E.D. Pa. Mar. 30, 2015). This case demonstrates the way policy arguments regarding a perceived congressional intent in favor of private enforcement of the FCA can impact legal arguments in FCA litigation.

The court first considered whether the relator’s claims had previously been publicly disclosed. The relator, a former sales representative employed by the defendant, filed a qui tam suit a month before resigning his position with the defendant in June 2002. Upon resigning, he filed a wrongful termination action pursuant to New Jersey’s Conscientious Employee Protection Act (“CEPA”). While the government weighed whether to intervene, the parties in the CEPA action engaged in discovery. They ultimately settled—with the relator signing a broad release of liability—and the qui tam suit was subsequently unsealed, with the government declining to intervene. The defendant argued that the relator’s Statement of Facts (“SoF”) in the CEPA action constituted disclosure through a “civil hearing,” thereby triggering application of the public disclosure bar. The court ruled that although the SoF “exhaustively details” the alleged off-label promotion of defendant’s cancer drug Taxotere, and corresponding payment of kickbacks, the SoF was not “substantially similar” to the relator’s complaint because the SoF did not state that any provider had submitted a claim to a federal healthcare program (“FHCP”). Accordingly, the court reasoned that the allegedly fraudulent transactions were not previously disclosed, and inferring the allegation of fraud “would impermissibly broaden the scope of the public disclosure bar and restrict private enforcement of the FCA.” The defendant has since filed a motion for reconsideration, arguing that where submission of false claims to the government is a “logical and obvious consequence” of an alleged scheme, all essential elements of the FCA claim are publicly disclosed.

The court next determined whether the relator had nonetheless waived his right to prosecute the qui tam suit through his settlement and release of liability in the CEPA action. Although the Third Circuit Court of Appeals has yet to rule on whether relators can unilaterally settle a qui tam suit post-filing, all of the courts of appeal to consider the issue have held that, based on the statutory language of the FCA, the government’s written consent is a prerequisite. In contrast, several courts of appeal have held that a pre-filing release can wipe out a would-be relator’s attempt to file a later qui tam suit, so long as the release covers the allegations in the suit and there are no countervailing public policy considerations. Consistent with the prevailing approach to post-filing releases, the Gohil court ruled that the relator’s release had no effect on the litigation. The defendant responded by suggesting that the release be effective as to the relator, but that the claims be dismissed without prejudice to the government’s ability to intervene. The court declined to adopt this approach, again invoking the “clear congressional intent of encouraging private enforcement of the FCA.”

As to the merits of the relator’s claims, the court first ruled that, even under the Third Circuit’s more lenient “reliable indicia” standard to the submission of false claims—in place of pleading the details of particular false claims submitted—the off-label promotion allegations did not meet Rule 9(b)’s requirements. This was so because all of the off-label uses related to medically accepted indications, which would have been eligible for government reimbursement. However, the court denied the defendant’s motion to dismiss the kickback allegations, holding that certifying compliance with the AKS is a precondition to payment by the FHCPs and that the relator had provided sufficient examples of kickbacks allegedly offered to providers. Finally, the court refused to dismiss the relator’s conspiracy count, ruling that a conspiracy between the defendant and providers could easily be inferred from examples of kickbacks supposedly paid by the defendant, followed by the recipient physician’s increase in Taxotere prescriptions.

A copy of the court’s opinion can be found here.

Dismissal of FCA Claims Based on Release Bars Claims By Subsequent Relator

On September 14, 2012, a federal district court in West Virginia dismissed a qui tam complaint against a pharmaceutical manufacturer on the ground that the claims were barred by the doctrine of res judicata (claim preclusion). The complaint, filed by relators Steven May and Angela Radcliffe, alleged that the defendant pharmaceutical manufacturer made false and misleading claims about one of its drugs. Radcliffe’s husband, Mark Radcliffe, had previously filed a separate qui tam complaint against the manufacturer containing similar allegations. The Fourth Circuit upheld the dismissal of the first suit on the ground that Mark Radcliffe’s FCA claims were barred by a Release Agreement he had signed in connection with his severance from the manufacturer.

In the second suit, the manufacturer argued that the Fourth Circuit’s decision barred the subsequent complaint filed by Mark Radcliffe’s wife on the grounds of res judicata because (1) the Fourth Circuit’s decision was a final judgment on the merits, (2) the causes of action in both suits were identical, and (3) the United States, as the real party in interest, and the relators seeking to assert claims on its behalf, are bound by the judgment in the first suit. The relators did not contest the second and third points, and it does not appear from the docket that the United States took any position concerning those issues. Rather, the relators argued that the dismissal of the prior case based on the employment release constituted a release based on lack of Article III standing (which would preclude the application of res judicata), rather than a dismissal on the merits. The district court disagreed, holding that dismissal of the previous case based on a settlement release constituted a dismissal on the merits, and therefore concluded that application of res judicata was appropriate and that the second-filed complaint should be dismissed. A copy of the decision can be found here.

Though the relators in the first and second cases were married, it does not appear that that relationship played a role in the court’s analysis. Indeed, in evaluating whether it was appropriate to bar the later suit based on the dismissal of the first suit, the Court appropriately recognized (as both the defendant and relators agreed) that the fact that the United States was the real party of interest in both suits, rather than any relationship between the relators in the two suits, is the key fact to be considered in determining whether application of claim preclusion is appropriate. Accordingly, this case supports the proposition that when a qui tam is dismissed based on a release agreement, such dismissal may serve to bar subsequent qui tams containing similar allegations, even where the first-to-file bar might not apply.